The Federal Reserve Board today announced its approval of the notice of Fleet Financial Group, Inc., Boston, Massachusetts, to acquire all the voting shares of The Quick & Reilly Group, Inc., Palm Beach, Florida, and its nonbanking subsidiaries, and thereby engage in a variety of nonbanking activities, including underwriting and dealing in, to a limited extent, certain types of bank-ineligible securities.

Attached is the Board's Order relating to this action.

Fleet Financial Group, Inc.
Boston, Massachusetts

Order Approving a Notice to Engage in Nonbanking Activities

Fleet Financial Group, Inc., Boston, Massachusetts ("Fleet"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under section 4(c)(8) of the BHC Act (12 U.S.C. § 1843(c)(8)) and section 225.24 of the Board's Regulation Y (12 C.F.R. 225.24) to acquire all the voting shares of The Quick & Reilly Group, Inc., Palm Beach, Florida ("Q&R Group"), and the wholly owned subsidiaries of Q&R Group.1 In connection with this transaction, Fleet proposes to engage in the following activities:

Underwriting and dealing in, to a limited extent, all types of debt and equity securities (other than ownership interests in open-end investment companies) that a member bank may not underwrite or deal in ("bank-ineligible securities");2

Underwriting and dealing in government obligations and money market instruments and buying and selling bullion and related activities, pursuant to section 225.28(b)(8) of Regulation Y (12 C.F.R. 225.28(b)(8)); and

Notice of the proposal, affording interested persons an opportunity
to submit comments, has been published (62 Federal Register 65,429 (1997)). The time for filing comments has expired, and the Board has considered the notice and all comments received in light of the factors set forth in section 4(c)(8) of the BHC Act.

Fleet, with total consolidated assets of approximately $83.6 billion, is the 12th largest banking organization in the United States. Fleet operates banking subsidiaries in six states and engages through subsidiaries in a broad range of permissible nonbanking activities.3 Q&R Group, with consolidated assets of $4.5 billion, engages directly and through its affiliates in securities brokerage and other related activities, including market-maker activities. In particular, JJC Specialist serves as a specialist on the New York Stock Exchange, and Nash Weiss serves as a market-maker on the National Association of Securities Dealers Automated Quotations System.4

Fleet currently engages through Fleet Securities, Inc., in limited underwriting and dealing in bank-ineligible securities, as permitted under section 20 of the Glass-Steagall Act (12 U.S.C. § 377).5 Fleet proposes to merge Fleet Securities, Inc., and Fleet Clearing Corporation, a subsidiary of Fleet, with the following subsidiaries of Q&R Group: JJC Specialist, Nash Weiss, and U.S. Clearing Corp. The combined organization ("Company"), which will be named Fleet Securities, Inc., will be a broker-dealer registered with the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.) and a member of the National Association of Securities Dealers, Inc. ("NASD"). Company, therefore, will be subject to the record-keeping and reporting obligations, fiduciary standards, and other requirements of the Securities Exchange Act of 1934, the SEC, and the NASD.

Underwriting and Dealing Activities
The Board has determined that, subject to the framework of prudential limitations to address the potential for conflicts of interests, unsound banking practices, or other adverse effects, underwriting and dealing in bank-ineligible securities is so closely related to banking as to be a proper incident thereto within the meaning of section 4(c)(8) of the BHC Act.6 The Board also has determined that the conduct of these securities underwriting and dealing activities is consistent with section 20 of the Glass-Steagall Act (12 U.S.C. § 377), provided that the company engaged in underwriting and dealing activities derives no more than 25 percent of its gross revenues from underwriting and dealing in bank-ineligible securities over a two-year period.7 Fleet has committed that Company will conduct its bank-ineligible securities underwriting and dealing activities subject to the Board's 25-percent revenue limit.8 No other Fleet company will engage in underwriting and dealing in bank-ineligible securities. As a condition of this order, Fleet is required to conduct its bank-ineligible securities activities subject to the revenue restriction and Operating Standards established for section 20 subsidiaries ("Operating Standards").9

Other Activities Approved by Regulation or Order
The Board previously has determined by regulation that credit and credit-related activities; data processing activities; financial and investment advisory services; brokerage, riskless principal, private placement, and other transactional activities; and bank-eligible underwriting and dealing activities are closely related to banking within the meaning of section 4(c)(8) of the BHC Act.10 Fleet has committed that it will conduct each of these activities in accordance with Regulation Y and the relevant Board interpretations and orders. The Board also previously has determined by order that providing investment company administrative services is closely related to banking within the meaning of section 4(c)(8) of the BHC Act.11

Proper Incident to Banking Standard
In order to approve this proposal, the Board must determine that the proposed activities are a proper incident to banking, that is, that the performance of the activities "can reasonably be expected to produce benefits to the public . . . that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices."12

As part of its review of these factors, the Board considered the financial resources of Fleet, and the effect the transaction would have on such resources. The Board also has reviewed the capitalization of Fleet and Fleet Securities, Inc., in accordance with the standards set forth in the Section 20 Orders and finds the capitalization of each to be consistent with approval of the proposal. The Board's determination about the capitalization of Fleet Securities, Inc., is based on all the facts of record, including Fleet's projections of the volume of Company's underwriting and dealing activities in bank-ineligible securities.

The Board also has reviewed the managerial resources of Fleet and each of the entities involved in the proposal.13 The Board has reviewed these resources in light of relevant reports of examination, and on the basis of these and all the facts of record, including the commitments provided in this case, the Board has concluded that financial and managerial considerations are consistent with approval of the notice.

The Board also has carefully considered the competitive effects of the proposed acquisition. To the extent that Fleet and Q&R Group offer different types of products, the proposed acquisition would result in no loss of competition. In those markets in which Fleet and Q&R Group overlap, such as the market for securities brokerage services, there are numerous existing and potential competitors. Consummation of the proposal, therefore, would have a de minimis effect on competition in the markets for these services, and the Board concludes that the proposal would not result in any significantly adverse competitive effects in any relevant market.

The Board expects that the proposed transaction would increase Fleet's ability to serve the needs of its customers, and would allow the combined organization to provide both existing and new customers with a broader range of products and services through an expanded distribution channel. The Board also expects that the proposed acquisition would result in operational efficiencies, allowing the combined organization to be a more effective competitor.

Under the framework and conditions established in this order and the Section 20 Orders, and based on all the facts of record, the Board concludes that consummation of the proposal can reasonably be expected to produce public benefits that outweigh any adverse effects of the proposal. Accordingly, the Board has determined that performance of the proposed activities by Fleet is a proper incident to banking for purposes of section 4(c)(8) of the BHC Act.

Conclusion
On the basis of the record, the Board has determined that the notice should be, and hereby is, approved, subject to all the terms and conditions discussed in this order and in the Section 20 Orders, as modified by Modification Orders.14 The Board's approval of this proposal extends only to activities conducted within the limitations of those orders and this order, including the Board's reservation of authority to establish additional limitations to ensure that Fleet's activities are consistent with safety and soundness, avoidance of conflicts of interests, and other relevant considerations under the BHC Act. Underwriting and dealing in any manner other than as approved in this order and the Section 20 Orders, as modified by Modification Orders, is not authorized.

The Board's approval of the proposal by Fleet to engage in underwriting and dealing in all types of debt and equity securities is conditioned on a determination by the Board that Fleet and Company have established policies and procedures for debt and equity underwriting and dealing to ensure compliance with the requirements of this order, the Section 20 Orders, and Modification Orders, including computer, audit, and accounting systems, internal risk management controls, and the necessary operational and managerial infrastructure. Fleet has requested a delay in conducting the infrastructure review until after Fleet has acquired Q&R Group in order to provide additional time for developing enhanced policies and procedures for the proposed bank-ineligible securities activities, most of which are not currently conducted by Q&R Group. As part of the request, Fleet has committed not to engage in any bank-ineligible securities underwriting or dealing activity, not already conducted by Q&R Group or Fleet, until the Board determines that a satisfactory infrastructure is in place. Accordingly, the Board has determined that Fleet may continue the current activities of Q&R Group while the infrastructure review is being conducted, subject to the condition that, if the initial results of the infrastructure review are not satisfactory to the Board, Fleet terminate, divest, or reduce the activities as the Board deems appropriate until a satisfactory review is achieved.

The Board's determination also is subject to all the terms and conditions set forth in Regulation Y, including those in sections 225.7 and 225.25(c) (12 C.F.R. 225.7 and 225.25(c)), and to the Board's authority to require modification or termination of the activities of a bank holding company or any of its subsidiaries the Board finds necessary to assure compliance with, or to prevent evasion of, the provisions and purposes of the BHC Act and the Board's regulations and orders issued thereunder. The Board's decision is specifically conditioned on compliance with the operating standards and with all the commitments made in connection with this notice, including the commitments discussed in this order and the conditions set forth in the Board regulations and orders noted above. The commitments and conditions shall be deemed to be conditions imposed in writing by the Board in connection with its findings and decision, and, as such, may be enforced in proceedings under applicable law.
This proposal shall not be consummated later than three months after the effective date of this order, unless such period is extended for good cause by the Board or the Federal Reserve Bank of Boston, acting pursuant to delegated authority.

2
As used in this order, "bank-ineligible securities" refers to all types of debt and equity securities that a bank may not underwrite or deal in directly under section 16 of the Glass-Steagall Act (12 U.S.C. § 24(7)).

7
Compliance with the revenue limitation shall be calculated in accordance with the method stated in the Section 20 Orders, as modified by the Order Approving Modifications to the Section 20 Orders, 75 Federal Reserve Bulletin 751 (1989), and 10 Percent Revenue Limit on Bank-Ineligible Activities of Subsidiaries of Bank Holding Companies Engaged in Underwriting and Dealing in Securities, 61 Federal Register 48,953 (1996), and Revenue Limit on Bank-Ineligible Activities of Subsidiaries of Bank Holding Companies Engaged in Underwriting and Dealing in Securities, 61 Federal Register 68,750 (1996). (collectively, "Modification Orders").

8
Company may provide services that are necessary incidents to the proposed underwriting and dealing activities. Unless Fleet receives specific approval under section 4(c)(8) of the BHC Act to conduct the activities independently, Company must treat any revenues from the incidental activities as bank-ineligible revenues subject to the Board's revenue limitation.

13
In its review of the statutory factors in this case, the Board has considered comments filed in connection with this notice. One commenter contends that an employee at a branch office of Fleet Bank, N.A., Jersey City, New Jersey, participated in a fraudulent scheme against the commenter, and argues that this reflects negatively on Fleet's internal controls and risk management systems. The Board has reviewed commenter's contention in light of Fleet's extensive supervisory record, which includes examination reports by appropriate supervisory authorities of the bank and information provided by Fleet regarding its risk systems and internal controls.

Another commenter alleges that Fleet financed the purchase of rehabilitated residential property in the Dorchester area of Boston at inflated prices, resulting in excessive debt service for minority and low- to moderate-income purchasers of these properties. The Board previously has considered these allegations in connection with a prior application by Fleet. See Fleet Financial Group, Inc., 82 Federal Reserve Bulletin 50 (1995). Fleet continues to deny any complicity with redevelopers in these transactions and maintains that all loans were made on the basis of independent appraisals. Fleet indicates that it has worked with a community-based organization to improve mortgage products available in Dorchester, and that it continues to perform in a responsible and responsive manner in the Dorchester community.

In addition, without alleging or providing any facts to show that Fleet has violated any law, the latter commenter contends that the underwriting criteria for the first-time home buyer programs of Fleet National Bank, Providence, Rhode Island, may have negative effects on low- to moderate-income individuals. Fleet asserts that its flexible mortgage programs provide a major source of financing for low- to moderate-income individuals. The Board notes that the Office of the Comptroller of the Currency, the primary federal regulator of Fleet National Bank, and the Board have sufficient supervisory authority to address any violations of law by Fleet involving any of its home mortgage lending programs if any such violation is found.

14
Commenters have requested a hearing or a public meeting on the proposal. Section 4 of the BHC Act and the Board's rules thereunder provide for a hearing on an application to acquire a savings association if there are disputed issues of material fact that cannot be resolved in some other manner. See 12 U.S.C. § 1843(c)(8). This case does not involve the acquisition of a savings association.

Under its rules, the Board may, in its discretion, hold a public hearing or meeting on an application or notice to clarify factual issues related to the notice and to provide an opportunity for testimony, if appropriate. See 12 C.F.R. 262.3(e) and 262.25(d). The Board has carefully considered commenters' requests for a hearing in light of all the facts of record. In the Board's view, commenters have had ample opportunity to present their views,
and they have submitted written comments that have been carefully considered by the Board in acting on the proposal. Commenters' requests fail to demonstrate why their written presentations do not adequately present their evidence, allegations, and views. For these reasons, and based on all the facts of record, the Board has determined that a public hearing or meeting is not required or warranted to clarify the factual record in the proposal, or otherwise warranted in this case. Accordingly, the request for a hearing on the proposal is hereby denied.